In this article, we discuss the top 10 value stocks hedge funds are buying in 2022.
As the Federal Reserve signals further monetary tightening, hedge funds and retail investors alike are flocking to value plays for a safe haven in this exceedingly uncertain and volatile macro backdrop. According to investment advisory JPMorgan Chase, in the last four years, the exposure of long/short equity funds to value stocks has been higher than growth names. Similarly, hedge funds are also pouring into value stocks, rather than actively buying the dips on expensive growth stocks.
The tech-heavy NASDAQ Composite is already in bear territory, while the S&P 500 is also treading dangerous waters. David Kelly, the chief global strategist at J.P. Morgan Asset Management, said on May 23 in an interview with Morningstar that he expects inflation adjusted economic growth of 2.5% year-over-year in 2022, and in terms of inflation, the consumer price index should close at 4.5% at the end of 2022 and 3.5% by the end of next year. He termed the current inflationary pressure as “transitory”, and believes it is an economic response to the pandemic and the tightening monetary policies. He also said that the huge demand for labor will keep the US out of the clutches of a recession. He advised investors to seek out value plays to navigate this market, indicating Europe and China as deep value territories.
The U.S. equity market is now trading at a 12% discount to fair value. Elite hedge funds are investing in value stocks to protect their portfolios, taking positions in companies like Wells Fargo & Company (NYSE:WFC), Merck & Co., Inc. (NYSE:MRK), and General Motors Company (NYSE:GM).
Our Methodology
We selected pure value stocks that were most popular in Insider Monkey’s Q1 2022 database of 912 elite hedge funds. The P/E ratio is mentioned as of May 26 for all securities. Stocks with a price to earnings ratio of under 20 were picked for the list.
Top Value Stocks Hedge Funds are Buying in 2022
10. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 75
P/E Ratio as of May 26: 19.22
The Home Depot, Inc. (NYSE:HD) operates as a home improvement retailer, selling building materials, home improvement solutions, lawn and garden equipment, and decor products. It is one of the top value stocks on the radar of hedge funds in 2022, with a price to earnings ratio of 19.22 as of May 26.
On May 17, The Home Depot, Inc. (NYSE:HD) reported its Q1 financial results, posting earnings per share of $4.09, ahead of analysts’ predictions by $0.40. The revenue of $38.91 billion also outperformed consensus estimates by $1.27 billion. The company declared on May 19 a $1.90 per share quarterly dividend, in line with previous. The dividend is payable on June 16, to shareholders of record as of June 2.
Citi analyst Steven Zaccone on May 20 raised the price target on The Home Depot, Inc. (NYSE:HD) to $348 from $327 and maintained a Buy rating on the shares. The analyst boosted his fiscal 2022 earnings estimates in light of Q1 results.
Among the hedge funds tracked by Insider Monkey, 75 funds were bullish on The Home Depot, Inc. (NYSE:HD) at the end of March 2022, up from 68 funds in the preceding quarter. Ken Fisher’s Fisher Asset Management held the largest position in the company, comprising over 8 million shares worth $2.4 billion.
Like Wells Fargo & Company (NYSE:WFC), Merck & Co., Inc. (NYSE:MRK), and General Motors Company (NYSE:GM), elite hedge funds are piling into The Home Depot, Inc. (NYSE:HD) as a value play.
Here is what Ensemble Capital has to say about The Home Depot, Inc. (NYSE:HD) in its Q1 2022 investor letter:
“Home Depot (7.7% weight in the Fund): The demand surge for remodeling and home improvement goods sparked by shelter in place orders, remote work going mainstream, and a shortage of homes on the market to buy, ran headlong into the supply chain crisis, triggering surging prices in the products Home Depot sells. But the company has been able to pass nearly all of these increased costs on to customers, with revenue growing 37% over the past two years while gross profits, or the profits the company makes on each item they sell, increased by 35%. Even this small difference appears to be due not to inflation eating away at Home Depot’s profits, but rather be a function of the huge increase in revenue the company has been generating in low margin lumber sales.”
9. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 76
P/E Ratio as of May 26: 6.21
General Motors Company (NYSE:GM) is one of the best value stocks that hedge funds are buying in 2022, offering a price to earnings ratio of 6.21. General Motors Company (NYSE:GM) is a Michigan-based automobile company that manufactures and sells vehicles, spare auto parts, and related accessories in North America, the Asia Pacific, the Middle East, Africa, South America, the United States, and China.
General Motors Company (NYSE:GM) on April 26 posted earnings for Q1 2022, announcing an EPS of $2.09, above consensus estimates by $0.43. The revenue of $35.98 billion, however, fell short of analysts’ predictions by $1.22 billion.
On May 11, Wells Fargo analyst Colin Langan double downgraded General Motors Company (NYSE:GM) to Underweight from Overweight, slashing the price target to $33 from $74. According to the analyst, battery EV costs have “massively risen” and there is tight raw material supply. In addition, he sees headwinds like price normalization, inflationary costs, and the 2023 UAW contract negotiations.
According to Insider Monkey’s database, General Motors Company (NYSE:GM) was found in 76 public hedge fund portfolios at the end of Q1 2022, compared to 90 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the leading shareholder of the company, with a position worth $2.71 billion.
Here is what Oakmark Global Fund has to say about General Motors Company (NYSE:GM) in its Q1 2022 investor letter:
“General Motors (NYSE:GM) was a detractor during the quarter, due to increased macro uncertainty, higher fuel prices, and concerns over rising input costs, which pressured the company in particular and the auto industry as a whole. While we are closely monitoring the potential impact of these dynamics, industry demand remains robust, driven by strong consumer balance sheets and pent-up demand after multiple years of constrained production. We also remain confident in GM’s ability to navigate a complex operating environment, which the company has consistently demonstrated over the past few years. Finally, the long-term picture remains bright. We believe GM is significantly undervalued, is well-positioned for the long-term transition to electric vehicles and has numerous needle-moving ancillary business opportunities (most notably Cruise, which is an industry leader in autonomous vehicle technology) that are underappreciated.”
8. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 79
P/E Ratio as of May 26: 12.17
Pfizer Inc. (NYSE:PFE) is a New York-based company that manufactures and distributes biopharmaceutical products worldwide. Pfizer Inc. (NYSE:PFE) reported its Q1 earnings on May 3, posting an EPS of $1.62, beating estimates by $0.05. The revenue grew about 76% year-over-year to $25.66 billion, outperforming Street forecasts by $927.11 million.
On May 23, SVB Leerink analyst David Risinger initiated coverage of Pfizer Inc. (NYSE:PFE) with a Market Perform rating and a $55 price target. The analyst is bullish on the company’s initiatives to increase innovation, but he struggles to forecast the strength of pandemic-related profits beyond 2022. Management is robustly reinvesting outsized COVID-related cash flows in research and development initiatives to increase long-term growth drivers and offset older patents, the analyst noted.
According to the first quarter database of Insider Monkey, 79 hedge funds were bullish on Pfizer Inc. (NYSE:PFE), with total stakes amounting to $4.10 billion. Cliff Asness’ AQR Capital Management is a significant stakeholder of the company, with a position worth over $554 million.
Here is what ClearBridge Investments Value Equity Strategy has to say about Pfizer Inc. (NYSE:PFE) in its Q4 2021 investor letter:
“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks.
What we did not account for, however, was vaccine hesitancy and the risk of further infection waves. As a result, the first variant wave, Delta, was a negative surprise to both the market and our team. When the risk surfaced, we immediately updated our probability-driven models and debated how we should react. The resulting conclusion was that the recovery would be delayed and that we should reduce our exposure quickly, subsequently targeting the most aggressive recovery stocks such as cruise lines. We again acted swiftly and decisively to the positive surprise that Pfizer had delivered a high-efficacy antiviral COVID-19 pill. This pill should greatly reduce COVID-19 severity risks globally, increasing the probability of a global travel recovery in 2022. While this is still true, the emergence of the highly mutated Omicron variant set off another infection wave which spurred us to again act quickly and further reduce our risk exposure. This back-and-forth may sound exhausting, but it highlights our compulsion to act if we determine a surprise has a large enough impact on the probabilities that power our valuation-driven investment cases.”
7. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 83
P/E Ratio as of May 26: 16.05
Exxon Mobil Corporation (NYSE:XOM) is an American multinational oil and gas corporation that is involved in the transport and sale of crude oil, natural gas, petroleum products, and petrochemicals. Exxon Mobil Corporation (NYSE:XOM) is a notable value energy play, with a price to earnings ratio of 16.05. The company aims to increase shareholder value by delivering solutions for global energy needs and lower greenhouse gas emissions to combat climate change.
Exxon Mobil Corporation (NYSE:XOM) posted earnings for the first quarter of 2022 on April 29, reporting an EPS of $2.07, falling short of analysts’ predictions by $0.16. The revenue grew 53% year-over-year to $90.50 billion, outperforming Street estimates by $5.62 billion.
On April 27, Exxon Mobil Corporation (NYSE:XOM) declared a quarterly dividend of $0.88 per share, in line with previous. The dividend is distributable on June 10, to shareholders of record on May 13. The stock delivers a dividend yield of 3.64% as of May 27. Exxon Mobil Corporation (NYSE:XOM) has a solid history of dividend increases stretching back to 39 consecutive years.
Citi analyst Alastair Syme on May 19 raised the price target on Exxon Mobil Corporation (NYSE:XOM) to $90 from $80 and maintained a Neutral rating on the shares after the Q1 results.
According to Insider Monkey’s data, 83 hedge funds were bullish on Exxon Mobil Corporation (NYSE:XOM) at the end of the first quarter of 2022, up from 71 funds in the preceding quarter. Rajiv Jain’s GQG Partners is the largest shareholder of the company, with 51.80 million shares worth $4.2 billion.
In addition to Wells Fargo & Company (NYSE:WFC), Merck & Co., Inc. (NYSE:MRK), and General Motors Company (NYSE:GM), institutional investors prefer Exxon Mobil Corporation (NYSE:XOM) for value investing.
Here is what Goehring & Rozencwajg Associates has to say about Exxon Mobil Corporation (NYSE:XOM) in its Q3 2021 investor letter:
“After successfully replacing 25% of Exxon’s board of directors despite owning just 0.02% of the outstanding equity, Engine No. 1, the climate-focused activist hedge fund, met with Chevron’s management late last summer. In discussions that were later described as “cordial,” Chevron executives shared their plan to reduce carbon emissions. Subsequently, Chevron announced new plans to further reduce carbon output, along with their intention to appoint a new director with “environmental expertise.” Although it remains unclear exactly what Engine No. 1 is planning, rumors suggest the fund has contacted other investors, strongly suggesting they intend to launch a second campaign in the not-too-distant future.
What should Chevron expect?
It was recently reported by The Wall Street Journal that Exxon was considering abandoning two massive natural gas projects: the 75 trillion cubic foot (tcf ) Rovuma LNG project (capital cost $30 bn) and the 5 tcf Ca Voi Xanh offshore-Vietnam gas project (capital cost $10 bn). Exxon board members (most likely including the three supported by Engine No. 1) have publicly expressed concerns about both projects.
According to internal reports, these projects are among the highest CO2 producers in Exxon’s pipeline; it is no surprise these projects have been called into question. However, we find the plight of both fields to be perplexing since production would almost certainly be used to displace coal in electricity generation, cutting CO2 emissions by nearly 50%. This fact seems to be lost on the new Exxon board members.”
6. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 84
P/E Ratio as of May 26: 16.83
Merck & Co., Inc. (NYSE:MRK) is an American healthcare company headquartered in Kenilworth, New Jersey, offering pharmaceutical products and vaccines for oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular, and diabetes. The company also manufactures veterinary pharmaceuticals and health management solutions.
Barclays analyst Carter Gould on April 19 raised the price target on Merck & Co., Inc. (NYSE:MRK) to $97 from $94 and reiterated an Overweight rating on the shares. The analyst observed that the Q1 prints are “unlikely to disrupt the momentum of macro-driven rotation to larger cap biopharma”.
On May 24, Merck & Co., Inc. (NYSE:MRK) declared a $0.69 per share quarterly dividend, in line with previous. The dividend is payable on July 8, to shareholders of record on June 15. Merck & Co., Inc. (NYSE:MRK) has consistently raised its dividend payouts for the last 11 years.
Merck & Co., Inc. (NYSE:MRK) posted its March quarter results on April 28, reporting earnings per share of $2.14, beating market consensus estimates by $0.31. The revenue of $15.90 billion jumped 31.63% compared to the prior-year quarter, topping analysts’ predictions by $1.25 billion.
According to Insider Monkey’s Q1 data, 84 hedge funds were bullish on Merck & Co., Inc. (NYSE:MRK), up from 80 funds in the earlier quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital held a prominent stake in the company, with 9.7 million shares worth about $801 million.
Here is what ClearBridge Investments Sustainability Leaders Strategy has to say about Merck & Co., Inc. (NYSE:MRK) in its Q4 2021 investor letter:
“Other pharma companies are providing solutions as well. Merck’s antiviral pill molnupiravir is less effective than Pfizer’s, but it will be a helpful alternative for patients who cannot take Pfizer’s due to drug-drug interactions. Merck is also helping to manufacture Johnson & Johnson’s COVID-19 vaccine, which has less stringent storage requirements than the mRNA vaccines do.”
5. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 88
P/E Ratio as of May 26: 6.38
Citigroup Inc. (NYSE:C) is one of the top value stocks on the radar of elite hedge funds. Citigroup Inc. (NYSE:C) is a diversified financial services holding company, operating through two segments – Global Consumer Banking and Institutional Clients Group. In Q1 2022, 88 hedge funds were bullish on Citigroup Inc. (NYSE:C), with collective stakes exceeding $8.1 billion, compared to 97 funds in the prior quarter, holding stakes in the company valued at $6.60 billion.
On April 14, Citigroup Inc. (NYSE:C) posted earnings for Q1 2022, reporting an EPS of $2.02, beating estimates by $0.61. The $19.19 billion revenue surpassed Street forecasts by $1.07 billion. The company delivers a dividend yield of 3.82% as of May 27.
Credit Suisse analyst Susan Roth Katzke on May 27 downgraded Citigroup Inc. (NYSE:C) to Neutral from Outperform with an unchanged price target of $58. The analyst cited valuation for the downgrade, with the shares up 15% from their recent lows and within 10% of the price target.
According to Insider Monkey’s data, Warren Buffett’s Berkshire Hathaway held the biggest position in Citigroup Inc. (NYSE:C) as of Q1 2022, with more than 55 million shares worth about $3 billion.
Here is what Artisan Value Fund has to say about Citigroup Inc. (NYSE:C) in their Q4 2020 investor letter:
“We fully exited the position in Citigroup. Global financial services company Citigroup made a $900 million clerical error and received a public reprimand from federal regulators. This, after a decade focused on process control, information technology and risk systems, makes the error substantially more costly than just the $900 million mistake. Regulators believe the company’s risk management improvements have fallen short of expectations. To rectify the situation, a process and technology spending surge could negatively affect 2021-2022 profits by 10% to 20%. Trust and confidence are important in large financial institutions, and this incident combined with the CEO’s sudden retirement shook ours.”
4. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 93
P/E Ratio as of May 26: 9.48
Wells Fargo & Company (NYSE:WFC), an American diversified financial services company offering banking, investment, mortgage, and commercial finance products and services, is one of the top value stocks that hedge funds are buying in 2022. The stock’s price to earnings ratio on May 26 came in at 9.48.
On April 26, Wells Fargo & Company (NYSE:WFC) declared a quarterly dividend of $0.25 per share. The dividend is payable on June 1, to shareholders of record on May 6. Wells Fargo & Company (NYSE:WFC) posted on April 14 its Q1 2022 results, reporting earnings per share of $0.88, beating market consensus estimates by $0.07.
Barclays analyst Jason Goldberg raised the price target on Wells Fargo & Company (NYSE:WFC) on April 18 to $64 from $62 and kept an Overweight rating on the shares after the Q1 results. The analyst increased his 2022 net interest income and loan growth outlook while keeping the expense projections unchanged despite Q1 coming in higher than expected.
According to Insider Monkey’s database, 93 hedge funds were bullish on Wells Fargo & Company (NYSE:WFC) at the end of March 2022, with combined stakes worth $6.8 billion. Patrick Degorce’s Theleme Partners is the biggest position holder in Wells Fargo & Company (NYSE:WFC), with 18.2 million shares worth $884.7 million.
Here is what Davis Opportunity Fund has to say about Wells Fargo & Company (NYSE:WFC) in its Q4 2021 investor letter:
“The absolute level of revenues and profits generated by such companies is in fact so large that most of the major financial holdings in the portfolio produce enough annual operating income individually that a number of them could, in theory, purchase several entire businesses among hundreds of choices within the S&P 1500 Index, using just a year’s cash earnings without dipping into capital. This is theoretical, as financial companies would not be in the business of buying healthcare or technology companies, for example, but we point out these facts to illustrate the sheer scale of the economics produced by single financial companies in a given year, which is often a multiple of the cash earnings yielded by companies in a host of other industries.
Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund include Wells Fargo.”
3. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
P/E Ratio as of May 26: 10.46
Bank of America Corporation (NYSE:BAC) offers financial products and services to individual consumers, small and middle-market businesses, institutional investors, large enterprises, and governments worldwide. In Q1 2022, 99 hedge funds were long Bank of America Corporation (NYSE:BAC), up from 84 funds in the preceding quarter.
Bank of America Corporation (NYSE:BAC) declared on April 27 a $0.21 per share quarterly dividend, in line with previous. The dividend is distributable on June 24, to shareholders of record on June 23. Bank of America Corporation (NYSE:BAC) delivers a dividend yield of 2.29% as of May 27.
On May 3, Oppenheimer analyst Chris Kotowski maintained an Outperform rating on Bank of America Corporation (NYSE:BAC) but lowered the price target on the stock to $50 from $52. Loan growth and high interest rates are good for banks, and even amid a recession, the banking industry “would handle it better than any recession in history”, the analyst told investors.
According to Insider Monkey’s Q1 data, Harris Associates is a significant shareholder of Bank of America Corporation (NYSE:BAC), with more than 44 million shares worth $1.8 billion.
Here is what ClearBridge Investments has to say about Bank of America Corporation (NYSE:BAC) in its Q1 2021 investor letter:
“Higher long-term interest rates supported financials such as Bank of America, which has shown both defensive and offensive characteristics in the past year. We believe it continues to be the least risky large bank from a credit standpoint, with conservative underwriting and controlled risk taking, a leading consumer deposit franchise, scale and technology. It is also a leader in its commitments to sustainability, or as it terms it, responsible growth. Disclosure and reporting at all levels form a large part of this commitment, including gender diversity and equality, environmental commitments and support of communities in which it operates. In the first quarter Bank of America announced it is setting a goal of net-zero greenhouse gas (GHG) emissions in its supply chain and operations, and notably also in its financing activities, before 2050.”
2. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 104
P/E Ratio as of May 26: 7.85
Berkshire Hathaway Inc. (NYSE:BRK-B) is a Nebraska-based diversified conglomerate holding company that engages in the insurance, freight rail transportation, and utility businesses worldwide. Berkshire Hathaway Inc. (NYSE:BRK-B) is one of the top value stocks on the radar of institutional investors.
In the first quarter of 2022, 104 hedge funds were bullish on Berkshire Hathaway Inc. (NYSE:BRK-B), with collective stakes amounting to more than $19 billion. Bill & Melinda Gates Foundation Trust held the biggest position in the company, comprising 28.6 million shares worth over $10 billion.
On May 1, Keefe Bruyette analyst Meyer Shields lowered the price target on Berkshire Hathaway Inc. (NYSE:BRK-B) to $560,000 from $565,000 and reiterated a Market Perform rating on the shares. Berkshire Hathaway Inc. (NYSE:BRK-B)’s Q1 operating earnings per share of $4,774 outperformed the Street’s $4,278 estimate, due to higher than forecasted non-insurance earnings but offset in part by lower than projected insurance underwriting income and increased taxes, the analyst told investors in a research note.
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 110
P/E Ratio as of May 26: 9.61
JPMorgan Chase & Co. (NYSE:JPM) is one of the most prominent American financial services companies. In Q1 2022, elite investors piled into JPMorgan Chase & Co. (NYSE:JPM). The number of hedge funds holding stakes in the company increased to 110 at the end of March from 107 in the earlier quarter.
On May 24, Societe Generale analyst Andrew Lim upgraded JPMorgan Chase & Co. (NYSE:JPM) to Buy from Hold with a price target of $150, up from $145. The company delivered positive guidance regarding net interest income, credit quality, and investment bank trading revenues, the analyst told investors. The analyst now has a more positive view on JPMorgan Chase & Co. (NYSE:JPM)’s surplus capital generation from 2023 and with the shares down significantly year-to-date, he thinks there is “too much negativity” factored in the price due to recession fears.
According to Insider Monkey’s Q1 data, Ken Fisher of Fisher Asset Management revealed a prominent stake in JPMorgan Chase & Co. (NYSE:JPM), comprising 7.76 million shares worth over $1 billion.
Here is what Ariel Investments has to say about JPMorgan Chase & Co. (NYSE:JPM) in its Q4 2021 investor letter:
“In our view, inflation will not just be a 2021 phenomenon. Inflationary expectations are only now working themselves into the labor market with historically low unemployment, resurgent labor unions, and higher wages. These labor cost pressures are only starting to show up in the Consumer Price Index. The most recent Producer Price Index showed a +9% year over year increase, the highest since it was created in 2010. Higher input prices generally lead to rising consumer prices.
“In our view, inflation will not just be a 2021 phenomenon.”
Consumer balance sheets are in excellent shape with lower unemployment and banked stimulus checks. A recent analysis from JP Morgan Chase (JPM) showed average checking accounts have 50% higher balances than pre-Covid. The U.S. money supply as measured by M2 (a calculation that includes cash, checking accounts, and “near cash” such as money market securities) is up +38% versus year-end 2019. Higher consumer cash holdings and higher money supply mean more spending and demand for goods. Some emphasize supply issues to explain current inflation. Going forward, we see very strong demand as well, too much money chasing too few goods.”
You can also take a look at 10 European Defense Stocks to Buy Now and 10 Growth ETFs to Buy Now.
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Disclosure: None. Top 10 Value Stocks Hedge Funds are Buying in 2022 is originally published on Insider Monkey.
